TORONTO – Another volatile week of trading is in the cards as stock markets keep one eye on Greece and the other eye on a raft of economic data and earnings reports.
Markets have had difficulty finding consistent direction in recent weeks as investors weigh upbeat earnings and economic news in North America against persistent worries about European debt.
Gareth Watson, director of the Canadian Equities Portfolio Advisory Group at ScotiaMcLeod, said this week should be no different.
“I think that when it comes to very near-term market performance, the focus is usually on the corporation, it’s on the performance and the ability of those corporations to do business and generate positive returns,” Watson said.
“However, in the longer term I think the focus turns more to the bigger, macro picture, and that’s when you start to get the jitters about the Greeces of the world.”
Greece’s debt problems – including a downgrade of its credit rating to junk status amid fears that it won’t be able to make its next payment – have been weighing on markets for weeks. Investors are afraid a Greek bailout could set the stage for other European countries to ask for help, slowing down the global economic recovery. This was exacerbated last week when ratings agency Standard & Poor’s also lowered the credit ratings of Portugal and Spain.
“They’ve struggled themselves, they’ve had to go out and borrow themselves, and you’re putting some of your neighbours at a disadvantage if you’re asking them for help…. What hurts one will hurt the group,” Watson said.
That said, there’s little doubt a bailout package for Greece will be treated as positive news in the short-run and could boost markets if it’s approved this week. Officials from the European Union and the International Monetary Fund have said they hope to reach an agreement as early as Friday.
Despite Greece’s woes, a stream of upbeat corporate earnings in Canada and the U.S., border, as well as signals that the economy is gathering steam, have kept markets bullish, said John Johnston, chief strategist of The Harbour Group at RBC Dominion Securities.
“Even accounting for what’s going on in Europe and allowing for some potential upset there, I think the case is there that we’re in a sustained global economic expansion… and that probably means that we’re in a cyclical bull market for equities,” Johnston said.
However, he predicted there will be a mid-cycle correction sometime this year – perhaps sooner rather than later if things get worse in Europe. The typical mid-cycle correction will see markets decline by 17 per cent, Johnston said.
“The momentum is waning, and you almost see the scales tipping,” he said.
“Right now the path of least resistance for equities seems to be up, but at a slow pace and it’s slow enough that I think some investors are just going to take their profits and hop off the bus and walk for a while.”
Before investors make that decision, they’ll be looking to one of the busiest weeks of Canadian earnings season for direction.
Companies that will report quarterly results this week include Suncor Energy Inc. (TSX:SU), Onex Corp. (TSX:OCX), Brookfield Asset Management Inc. (TSX:BAM.A), Manulife Financial Corp. (TSX:MFC), Thomson Reuters Corp. (TSX:TRI), Loblaw Companies Ltd. (TSX:L), Air Canada (TSX:AC.A), WestJet Airlines Ltd. (TSX:WJA) and HudBay Minerals Inc. (TSX:HBM).
They will also look for indications that the economic recovery is strengthening both here and in the United States.
The most important data to be released this week is employment numbers, which will be reported for both countries on Friday. The consensus forecast is for 24,000 jobs to be added in Canada and 180,000 jobs to be added in the U.S.